By Tiernan Ray

Argus Research‘s Joseph Bonner today cut his rating on shares of Microsoft (MSFT) to Hold from Buy, writing that “Early data indicate that Windows 8 may not be selling particularly well and that mass adoption will likely take longer than initially expected.”

Bonner’s EPS forecast for this fiscal year ending in June is for $2.99 per share, and $3.22 for next year, which is actually better than the Street’s $2.88 and $3.21, respectively.

Bonner opines that other devices, such as tablets, are robbing Windows 8 of sales:

We think the reason may be a secular move by consumers to non-Windows based mobile devices such as the iPad. With Microsoft reporting December quarter earnings on January 24, the shares could also face near-term headline risk in the event of disappointing results. Flat revenue growth and a modest decline in EPS implied an unimpressive September quarter, reported on October 18. While we would normally expect a slowdown just prior to the release of a new operating system, this weakness continued even after the release of Windows 8 on October 26, suggesting that tablet computing is taking share from the Windows-oriented PC/laptop/ultrabook market. Microsoft is responding to the rise of tablets with Windows NT and its own Surface device, though sales of the Surface also look weak despite generally favorable reviews. The macroeconomy is also a negative factor, particularly in Europe.

Bonner explains that Windows 8 appears not to be stemming the tide of purchases of tablet computers, and that the forthcoming “Surface Pro” version of the company’s Surface tablet may be priced higher than consumers appear willing to pay:

While we expected the adoption of Windows 8 to build slowly, without an “Apple-like” blockbuster debut, it currently appears that Windows 8 has had no impact on consumers’ migration to non-Windows tablet devices and has done little to boost PC sales. PC makers Fujitsu and Acer have both pointed to weak sales of Windows 8 devices. Fujitsu has said that it will miss its fiscal year target for PC shipments by one million units, and has lowered its unit shipment forecast to 6 million from 7 million. Meanwhile, Acer management has commented that the Windows 8 touch-screen interface may be scaring off consumers. Industry tracker NPD Group recently reported that sales of Windows devices fell 21% year-over-year in the month following the release of Windows 8, and that sales of notebook PCs fell 24% during this period. NPD also noted that Windows 8 accounted for 58% of Windows device sales versus 83% for Windows 7 at the same time in its release cycle. In addition, although the new Surface tablet is clearly a showcase for the company’s technology, disappointing sales could tarnish this first foray into tablet computing. The Surface Pro, with full MS Office compatibility, is scheduled to be released in January. However, even with full Office functionality, the base model price of $899, compared to $399 for an iPad 2, could give some customers pause. Windows 8 has several innovative features and has generally received positive reviews. However, the acid test is consumer adoption, which is likely to take longer than we initially expected.

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JANUARY 4, 2013 4:25 P.M.

Not_surfacing wrote:

Why in the world would I want an $899 "Surface Pro" Office-capable device when $350-$450 Office-capable laptops abound? Microsoft's strategy is just plain moronic. Instead of upgrading my reliable old Vista laptop I'm just getting a new Android smartphone. MS seems to be on a mission to make itself irrelevant, except in the workplace! At work, MS rocks with SQL server, Windows 7 server and Office 2010.

JANUARY 4, 2013 5:00 P.M.

Anonymous wrote:

Poop mouth

JANUARY 4, 2013 5:07 P.M.

joikko wrote:

Wish I didn't upgrade to Win8. Not even a start-menu in this thing. Fail OS.

JANUARY 4, 2013 5:39 P.M.

bryan wrote:

Hey joikko, the whole start screen is your start menu on steroids. Give it a chance and let Microsoft defend their relevance by moving into the modern era instead of being chained to the past to appease customers who can't bother to learn something new.

JANUARY 4, 2013 6:15 P.M.

Grsmonkey wrote:

I have been doing some contract work on 2 win 8 machines. I think that once all the drivers and software catches up. It will just fine. Like Bryan said they are trying to move forward instead of just doing the usual refresh year after year. It takes an hour or so to get used things, but after that you pretty much go about your business. The start screen/menu is really what most users want. A place where they can see and click on everything they need.

JANUARY 4, 2013 6:18 P.M.

Mick wrote:

If I am going to be forced to relearn an operating system for my PC then I will go buy a Mac.I dont want a tablet format on my desktop.Thats my choice!

JANUARY 4, 2013 6:31 P.M.

techy46 wrote:

Windows 8 will take a little longer since it's best with a touch screen which are just now starting to ship in quantity. WP8 is going great and it'll be interesting to see the two feed off of each other's ecosystem. I'll be getting an Lenovo Yoga 13" ultra-tablet with Intel, i5128 Gb SSDD as soon as prices drop a $100 or so. That device will toast and iPad or iMac and be t he best of all worlds.

JANUARY 4, 2013 8:43 P.M.

READ THIS IS YOU WANT THE START MENU BACK! wrote:

I don't even have a Surface or Win 8 computer yet (surface pro coming soon though with my new win 8 phone purchase too), BUT even I know......

YOU CAN HIT ONE FREAKIN BUTTON AND GO BACK TO THE TRADITIONAL WINDOWS LOOK AND NOT HAVE TO USE THE TOUCHSCREEN INTERFACE WHICH IS FOR TABLETS.

This is an amazing OS as it works for BOTH tablets AND Laptops/PC's. You don't have to learn much of anything new if you don't want to and if you read up on SmartGlass then you will see the amazing power of the new Windows 8 ecosystem that will link Tablet, phone, pc, xbox, etc... MUCH better than any other OS (YES MUCH BETTER THAN APPLE). Integrating with my work stuff makes this even better!

p.s. I think you can still Alt-Tab through open programs which someone else couldn't figure out.

JANUARY 4, 2013 9:18 P.M.

DougMtView wrote:

I love using a Retina display, but it seems only Apple programs do it justice. Windows 8 typography actually looks worse than Windows 7's. I have not seen any brisk sales of touch displays either. Anyone placing greasy fingers on my display will hear about it. My multi-gesture touching uses a trackpad, which again Windows 8 lacks comparable support. With so many applications on Windows 8 not launching when given a resolution less than 1366x768, hovering over corners to access menus becomes a PITA when windows must be panned. Swipe gestures with a mouse also seem problematic. Win+X, Win+R, Win+I, Win+C, and Win+Z are not exactly intuitive either. Tiles are poor replacements for notifications, looking for windows that magically appear on the Desktop when using the "Modern" UI is another PITA. Drivers are not very stable, and of course Windows 8 removed technical information from the BSOD. This upgrade removes Media center, and even the Pro version lacks the DVD Maker. Advice to Windows users: Wait for Windows 9. It will not be long.

JANUARY 5, 2013 12:01 P.M.

Anonymous wrote:

I don't like looking at it. It bugs me. I would be a lot happier if they just gave the money back to investors.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.